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Monday, 8 July 2013

GMAT AWA Sample Essay

Question:

The following appeared as part of an annual report sent to stockholders
by Olympic Foods, a processor of frozen foods:

“Over time, the costs of processing go down because as organizations
learn how to do things better, they become more efficient. In colour film
processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for
five-day service in 1970 to 20 cents for one-day service in 1984. The same
principle applies to the processing of food. And since Olympic Foods will soon
celebrate its 25th birthday, we can expect that our long experience will enable
us to minimize costs and thus maximize profits.”

Discuss how well reasoned you find this argument. In your discussion be
sure to analyze the line of reasoning and the use of evidence in the argument.
For example, you may need to consider what questionable assumptions underlie
the thinking and what alternative explanations or counterexamples might weaken
the conclusion. You can also discuss what sort of evidence would strengthen or
refute the argument, what changes in the argument would make it more logically
sound, and what, if anything, would help you better evaluate its conclusion.

Answer:

The excerpt from the annual report
sent to stockholders of Olympic Foods, a processor of frozen foods states that
the Company expects costs to minimize so as to enable maximization of profits.
This is stated on the rationale that when Organizations are in the business
community for a long time, over a period, the costs generally reduce. An
example has been provided with reference to colour film processing industry
where the cost of a 3-by-5-inch print fell from 50 cents for five-day service
in 1970 to 20 cents for one-day service in 1984.

The statement made by the Company is,
in my opinion, based on several theories. One of those theories is
specialization. When an Organization is in the field for a long period of time,
it develops a specialization. Rather, its employees develop the specialization.
As and when an employee gets trained in a particular field, he becomes a
master. This enables him to find out his own short cuts of sorts while
maintaining the quality level of work. These short cuts, somewhere or the
other, help the organizations cut costs which even if by a small margin, help
immensely.

The second theory which I feel has
been relied on is more of an assumption. The Organization assumes that the
economy is facing no ups or downs. It is a flat line. This would indicate that
the Company is facing no inflation or deflation, for that matter. This
statement then becomes a strictly theoretical statement, not applicable to real
life scenarios. In the real world, we have inflation, deflation, at times the
purchasing power is high, other times, it is not so. These points cannot be
overlooked while presenting the financial statements since a true and fair view
needs to be presented.

The third theory that the Company has
overlooked is that fact that cost reduction alone may not help in profit
maximization. It may so be assumed by the stockholders that if cost is
reducing, the cost components may or may not be working up to the mark. This
may in turn raise questions as to quality control done by the Company.

The Organization’s statement would
have had a deeper impact had it included the concerns of inflation, the
supplier information, pricing policies and marketing strategies. Inflation
means the prices of goods keep increasing. It is not something that happens
overnight. Organizations know about all this in advance and hence would be able
to give a nearly accurate future profitability data. Also, as far as manpower
is concerned, the Organization should ensure that the employees are not
slacking off. It so happens that when a certain comfort level is reached, the
employees start taking the Organization for granted. This shouldn’t be the case
and the Organization needs to make several efforts to keep the employee
motivated. This would not only help build a good corporate image but also show
the stockholders that the Organization cares and gives everyone their dues.
Again, as stated earlier, only reduction in cost is not going to help with
maximization of profit. The consumers would want to share the benefit of cost
by asking the Organization to reduce the price. Hence, the Company should also
look to increase supply of the product, thus reaching out to the majority and
increasing their sales.

In my opinion, had the Company taken
into account the above mentioned points and then made an appropriate statement,
it would have been well rounded and complete.